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India’s stock market ready for another 2008-like crash?

Since the beginning of 2017, The key Indian indices, Sensex and Nifty have been on a continuous rising streak. Till now in 2017, domestic investors have bought stocks worth more than $7.2 billion when compared with foreign portfolio investors who have run up a tab of $6.67 billion. FPIs bought stocks worth $2.9 billion In 2016, while home-grown wholesale investors spent $5.6 billion. So far in this year, the benchmark index of National Stock Exchange – Nifty 50 and Bombay Stock Exchange – Sensex have returned 21-24% so far in this year. In the early morning trade today, the broader Nifty 50 index hit an all-new lifetime high of 10,178.95 points.

These stellar returns may be a sign of depression or a stock market crash like it happened in the year 2008 as the 30-share barometer Sensex tumbled 27% over the month of September nine years back to 9,748.08 points from 13,417.91 points. The net profits for the Nifty set of companies fell around 11% year-on-year in the first quarter of FY 2018 which disappointed the Street.

Brokerages have been expressing caution the Indian market is overvalued, trading at close to 20 times one-year forward earnings, well above its long-term historical valuations of around 15 times. Moreover, they have also flagged the downwards revisions to earnings estimates. “There is a clear and present risk to the earnings turnaround in FY19 as consumption, which has been the sole driver of growth, will not likely be strong enough due to weak fiscal push and job growth. The capex cycle remains nascent and limited to pockets of infrastructure,” Macquarie wrote in a report.

India’s GDP growth disappointed for the second straight quarter, slowing down to a mere 5.7% in April-June and pitting the country behind China on the list of worlds’ fastest-growing major economies. The 5.7% fiscal first-quarter GDP growth, of an economy desperately trying to recover from the shocking impact of demonetization, was much lower than the 7.9% seen in the same quarter a year ago. It even slowed down from 6.1% in the preceding quarter.